Published in The Metropolitan Corporate Counsel, June 2005.
Each year, the Office of the United States Trade Representative (USTR) issues a report identifying foreign countries that, in its view, deny adequate and effective protection of intellectual property rights (IPR). The USTR has set up three lists, in decreasing order of "severity": (1) Priority Foreign Countries, (2) Priority Watch List, and (3) Watch List. A total of 52 countries appear on the combined lists.
Canada is one of the countries included on the Watch List contained in the USTR’s 2005 report, issued April 29, 2005. Canada is, in fact, a signatory to the major intellectual property treaties and has a robust system of intellectual property registration and enforcement. And Canada does consider itself to be a reasonable country, with appropriate protection afforded for all aspects of IPR, although some aspects could be criticized and ought to be improved.
In the circumstances, therefore, two questions arise:
(1) What does it mean to be on the Watch List?
(2) Does Canada deserve to be on the Watch List?
What Does it Mean to be on the Watch List?
First, note that the Watch List is at the lowest end of the USTR’s vigilance. However, note too that 38 of the 90 countries whose IP protection regimes were examined by the USTR managed to avoid being included on any of the three lists.
Second, note that this designation is not new. Canada has been included on the list in previous years, and is being "maintained" on the 2005 list for the alleged transgressions referred to in the USTR’s report.
The USTR makes the following distinctions between its three lists: Priority Foreign Countries are those pursuing the most onerous or egregious policies that have the greatest adverse impact on U.S. rights holders or products, and are subject to accelerated investigations and possible sanctions. Countries or economies on the Priority Watch List do not provide an adequate level of IPR protection or enforcement, or market access for persons relying on intellectual property protection. Thirtyfour trading partners are placed on the Watch List, meriting bilateral attention to address the underlying IPR problems.
Thankfully, Canada is not considered to be pursuing onerous or egregious IPR policies. In fact, the USTR appears to agree that Canada generally has an adequate level of IPR protection and enforcement, and provides adequate market access to persons relying on IPR. This conclusion is supported by a more detailed analysis of the bases for Canada’s inclusion on the Watch List, some of which are questionable. In essence, the USTR is merely saying it disagrees with certain aspects of Canadian policy regarding the protection and enforcement of IPR, and hopes that Canada will implement laws that coincide with the U.S. administration’s views. In this regard, the USTR’s concerns should be considered and dealt with as appropriate by the Canadian government, but there is no need to panic: Canada is not a haven for IPR infringers, nor is it accused of being one.
Does Canada Deserve to be on the Watch List?
Although Canada’s inclusion on the Watch List is not a harsh indictment of its IPR policies, it appears that some of the bases relied upon by the USTR do not support including Canada on the Watch List.
Why Canada is on the Watch List
According to the USTR, Canada is on the list for the following reasons:
(1) Canada has failed to implement certain WIPO Internet Treaties and Canada’s copyright laws need to be amended to provide adequate protection of copyrighted works in the digital environment, in particular,
(a) to outlaw trafficking in devices capable of circumventing technological protection measures, and
(b) to establish a notice-and-takedown system to encourage cooperation by Internet service providers (ISPs) in combating online infringement.
(2) Canada’s enforcement system needs to be improved to stop the "extensive" trade in counterfeit and pirated goods; and the border personnel need to be given more resources to improve border measures that "continue to be a serious concern."
(3) While it is recognized that Canada has taken steps to improve its data protection regime, concern is expressed over certain aspects of the proposed regulations intended to fully implement the data protection regime.
Space limitations prevent us from discussing the appropriateness of each of these bases here, but we pay special attention below to the WIPO Internet Treaties and digital copyright issues.
WIPO Internet Treaties and Amendments to the Copyright Act
Canada participated in the negotiations and signed the WIPO Internet Treaties in 1997, but has yet to ratify them or fully implement the provisions through domestic copyright law. Although Canada should be encouraged to implement these treaties with domestic legislation, not all signatories have implemented the treaties to date, and this should not be a reason to include a country on the Watch List.
Prohibitions Regarding Technological Protection Measures
Canada has proposed legislation to implement the WIPO Internet Treaties regarding anti-circumvention of technological protection measures (TPMs). However, the USTR maintains that these proposed measures do not satisfy all requirements of the WIPO Internet Treaties. The treaties provide that "Contracting Parties shall provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors (or performers or producers of phonograms) in connection with the exercise of their rights." (emphasis added)
It would appear that the USTR is discontented that Canada has chosen (in legislation proposed to implement the WIPO Internet Treaties) to prohibit only acts of circumvention, not also the trafficking of circumvention devices.
While the U.S. Digital Millennium Copyright Act (DMCA) contains prohibitions against both circumvention and trafficking in circumvention technology, the WIPO Internet Treaties do not mandate the inclusion of both aspects. Indeed, the DMCA goes beyond WIPO’s minimum standards for protecting TPMs and should not be considered the minimum standard for providing adequate and effective protection and enforcement of IPR. This is merely an example of two nations disagreeing over the specific measures necessary to implement an agreed objective.
ISP Liability and P2P File Sharing
The USTR is concerned about Canada’s proposals regarding ISP liability and refers to a Canadian Federal Court case that dealt with compelling ISPs to disclose the user IDs of alleged online infringers. In that case the judge stated: "The mere fact of placing a copy on a shared directory in a computer where that copy can be accessed via a P2P service does not amount to distribution. Before it constitutes distribution, there must be a positive act by the owner of the shared directory, such as sending out the copies or advertising that they are available for copying....The exclusive right to make available is included in the ... WIPO Performances and Phonograms Treaty ..., however that treaty has not yet been implemented in Canada and therefore does not form part of Canadian copyright law." 1
However, the USTR fails to mention that proposed amendments to the Canadian Copyright Act address liability for P2P file sharing. Rights holders will have the exclusive right to control the availability of works and other subject matter on digital networks. This confirms that unauthorized posting of material such as P2P file sharing will constitute infringement of copyright. It will also be made clear that private copies of sound recordings cannot be uploaded or further distributed. The mere presence of a copyright protected work on a P2P shared directory will be an infringement of the Act and subject to a proposed "notice-and-notice" regime.
The proposed Canadian legislation provides a notice-and-notice regime for alleged infringement by a subscriber. When an ISP receives notice from a rights holder that one of the ISP’s subscribers is allegedly hosting or sharing infringing material, the ISP will be required to forward the notice to the subscriber. Blocking access to such material will be required only when ordered by a court. ISPs will also be required to retain, for a set period of time, information sufficient to identify the subscriber in question.
This notice-and-notice regime complies with the WIPO Internet Treaties. However, it differs from the U.S. approach, and is thus the subject of Watch List attention. The USTR specifically encourages Canada to establish a noticeand- takedown system to encourage cooperation by ISPs in combating online infringements. The U.S. notice-and-takedown regime requires that once the ISP receives sufficient notice from a concerned rights holder, or where the ISP discovers the infringing material itself, it is required to expeditiously remove, or disable access to, the material. The ISP is not required to notify the individual responsible for the allegedly infringing material before it has been removed, but must do so after the material has been removed.
Opting for a notice-and notice system over a notice-and-takedown system merely reflects a difference of opinion between sovereign nations over the best way to implement effective enforcement requirements of a multilateral treaty. It remains to be seen which of the two approaches is the most effective and fair measure to protect IPR.
Additionally, under the proposed amendments, ISPs will be exempt from copyright liability in relation to their activities as intermediaries – namely, their activities as mere conduits for information, their caching activities, their hosting activities and their information location activities. This approach is consistent with a 2004 Supreme Court of Canada decision, in which the Court held: "So long as an Internet intermediary does not itself engage in acts that relate to the content of the communication, i.e., whose participation is content neutral, but confines itself to providing ‘a conduit’ for information communicated by others, then it will fall within [the exceptions of the Copyright Act.]"2
It appears that the United States and Canada cannot fully agree on all of the appropriate measures required to provide adequate and effective protection and enforcement of IPR. Canada’s inclusion on the Watch List is not particularly troubling, at least insofar as the issue of digital copyright protection is concerned. Although there are legitimate issues regarding the timing of implementation of the WIPO Internet Treaties, these should be handled in the ordinary course of bilateral discourse between sovereign nations, and should not raise any alarms over Canada’s commitment to protect and enforce innovation through intellectual property legislation.
1 BMG Canada Inc. v. John Doe,  3 F.C.R. 241 (F.C.) at ¶ 28.
2 Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers,  2 S.C.R. 427 at 466, ¶ 92.
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